The National Association of Insurance Commissioners
(NAIC) has promulgated RBC requirements for property
and casualty insurance companies to evaluate the adequacy of
statutory capital and surplus in relation to investment and
insurance risks such as asset quality, loss reserve adequacy and
other business factors. The RBC information is used by state
insurance regulators as an early warning mechanism to identify
insurance companies that potentially are inadequately
capitalized. In addition, the formula defines minimum capital
standards that supplement the current system of fixed minimum
capital and surplus requirements on a
state-by-state
basis. Regulatory compliance is determined by a ratio (the
Ratio) of the enterprises regulatory total
adjusted capital, as defined by the NAIC, to its authorized
control level RBC, as defined by the NAIC. Generally, a
Ratio in excess of

200% of authorized control level RBC requires no corrective
actions on behalf of a company or regulators. As of
December 31, 2008, each of CNA Suretys insurance
subsidiaries had a Ratio that was in compliance with minimum RBC
requirements.

CNA Suretys insurance subsidiaries require capital to
support premium writings. In accordance with industry and
regulatory guidelines, the net written premiums to surplus ratio
of a property and casualty insurer generally should not exceed 3
to 1. On December 31, 2008, Western Surety and its
insurance subsidiaries had a combined statutory surplus of
$554.6 million and a net written premium to surplus ratio
of 0.8 to 1. On December 31, 2007, CNA Surety had a
combined statutory surplus of $442.2 million and a net
written premium to surplus ratio of 1.0 to 1. The Company
believes that each insurance companys statutory surplus is
sufficient to support its current and anticipated premium levels.

The NAIC has also developed a rating system, the Insurance
Regulatory Information System (IRIS), primarily
intended to assist state insurance departments in overseeing the
financial condition of all insurance companies operating within
their respective states. IRIS consists of thirteen financial
ratios that address various aspects of each insurers
financial condition and stability. In 2008, the ratios for
Western Surety, Universal Surety and Surety Bonding were within
the usual ranges as defined by the NAIC. In 2007,
the Change in Adjusted Policyholders Surplus for Western
Surety was outside the normal range due to net income and a
reduction in dividends paid to Western Suretys parent
company, CNA Surety.

Risk Based Capital (RBC) and Other Regulatory Ratios

The National Association of Insurance Commissioners (NAIC) has promulgated RBC requirements for property and casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, loss reserve adequacy and other business factors. The RBC information is used by state insurance regulators as an early warning mechanism to identify insurance companies that potentially are inadequately capitalized. In addition, the formula defines minimum capital standards that supplement the current system of fixed minimum capital and surplus requirements on astate-by-state basis. Regulatory compliance is determined by a ratio (the Ratio) of the enterprises regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Generally, a Ratio in excess of

200% of authorized control level RBC requires no corrective actions on behalf of a company or regulators. As of December 31, 2008, each of CNA Suretys insurance subsidiaries had a Ratio that was in compliance with minimum RBC requirements.

CNA Suretys insurance subsidiaries require capital to support premium writings. In accordance with industry and regulatory guidelines, the net written premiums to surplus ratio of a property and casualty insurer generally should not exceed 3 to 1. On December 31, 2008, Western Surety and its insurance subsidiaries had a combined statutory surplus of $554.6 million and a net written premium to surplus ratio of 0.8 to 1. On December 31, 2007, CNA Surety had a combined statutory surplus of $442.2 million and a net written premium to surplus ratio of 1.0 to 1. The Company believes that each insurance companys statutory surplus is sufficient to support its current and anticipated premium levels.

The NAIC has also developed a rating system, the Insurance Regulatory Information System (IRIS), primarily intended to assist state insurance departments in overseeing the financial condition of all insurance companies operating within their respective states. IRIS consists of thirteen financial ratios that address various aspects of each insurers financial condition and stability. In 2008, the ratios for Western Surety, Universal Surety and Surety Bonding were within the usual ranges as defined by the NAIC. In 2007, the Change in Adjusted Policyholders Surplus for Western Surety was outside the normal range due to net income and a reduction in dividends paid to Western Suretys parent company, CNA Surety.

The National Association of Insurance Commissioners
(NAIC) has promulgated RBC requirements for property
and casualty insurance companies to evaluate the adequacy of
statutory capital and surplus in relation to investment and
insurance risks such as asset quality, loss reserve adequacy,
and other business factors. The RBC information is used by state
insurance regulators as an early warning mechanism to identify
insurance companies that potentially are inadequately
capitalized. In addition, the formula defines minimum capital
standards that supplement the current system of fixed minimum
capital and surplus requirements on a
state-by-state
basis. Regulatory compliance is determined by a ratio (the
Ratio) of the enterprises regulatory total
adjusted capital, as defined by the NAIC, to its authorized
control level RBC, as defined by the NAIC. Generally, a
Ratio in excess of 200% of authorized control level RBC
requires no corrective actions on behalf of a company or
regulators. As of December 31, 2006, each of CNA
Suretys insurance subsidiaries had a Ratio that was in
compliance with minimum RBC requirements.

CNA Suretys insurance subsidiaries require capital to
support premium writings. In accordance with industry and
regulatory guidelines, the net written premiums to surplus ratio
of a property and casualty insurer generally should not exceed 3
to 1. On December 31, 2006, Western Surety and its
insurance subsidiaries had a combined statutory surplus of
$349.0 million and a net written premium to surplus ratio
of 1.2 to 1. On December 31, 2005, CNA Surety had a
combined statutory surplus of $275.2 million and a net
written premium to surplus ratio of 1.3 to 1. The Company
believes that each insurance companys statutory surplus is
sufficient to support its current and anticipated premium levels.

The NAIC has also developed a rating system, the Insurance
Regulatory Information System (IRIS), primarily
intended to assist state insurance departments in overseeing the
financial condition of all insurance companies operating within
their respective states. IRIS consists of twelve financial
ratios that address various aspects of each insurers
financial condition and stability. In 2006 and 2005, most of the
ratios for Western Surety, Universal Surety and Surety Bonding
were within the usual ranges as defined by the NAIC,
except as noted. For 2006, the Net Change in Adjusted
Policyholders Surplus for Western Surety was outside the
normal range due to the increase in net income and a reduction
in dividends paid to Western Suretys parent company, CNA
Surety. Also, the Change in Net Premiums Written for Surety
Bonding was outside the normal range due to the decline in
production resulting from the loss of the large notary program
discussed previously. For 2005, the Investment Yield for each of
the insurance companies was outside the usual range due to a
concentration of short-term and tax-exempt investments.